It may sound simple, but the flat-rate scheme for VAT continues to cause problems for businesses and their accountants. This article from our Business Tax Library sets out the basic rules behind the scheme, and highlights some of the potential pitfalls.
Under the flat rate scheme (FRS), you pay VAT as a fixed percentage of your VAT-inclusive turnover. The actual percentage you use depends on your type of business.
The VAT flat rate scheme can work quite well for businesses on low FRS rates and few purchases, explained tax barrister Anne Fairpo in her 12 November podcast. “For example, in the ‘any other activity’ category it can work in the business’s favour: 12% of 120% is 14.4% rather than 20%, which would generally have to be accounted for to HMRC,” she said.
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- How the VAT flat rate scheme works
- Who can't join the Flat Rate Scheme
- Working out your flat rate percentage and the VAT you need to pay
- Potential benefits of using the Flat Rate Scheme
- Potential disadvantages of using the flat rate scheme
- Is it worth registering with the scheme?
- FRS dos and don'ts